Indifference valuation in incomplete binomial models (Q613732)
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scientific article
| Language | Label | Description | Also known as |
|---|---|---|---|
| English | Indifference valuation in incomplete binomial models |
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Indifference valuation in incomplete binomial models (English)
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21 December 2010
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The authors deal with so called indifference valuation under the exponential preferences i.e. the nonlinear pricing induced by the exponential utility function \[ \varphi(x)= - \exp(-\lambda x), \;\;\; \lambda >0. \] The goal is to determine the prices of contingent claims, which depend on one traded asset and one non-traded factor. This is performed for the binomial models. The authors provide two iterative pricing algorithms based respectively on the minimal martingale and minimal entropy measures.
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indifference pricing
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incomplete markets
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utility function
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minimal martingale measure
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minimal entropy measure
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binomial model
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